Startups and **** Series
I was going through my feed today when I came across a peculiar story on the number of Internet users in the country driving digital growth, to much surprise we today have around 265 mn active internet users in rural India compared to 210 mn urban. The drivers of the digital innovation lie in the rural parts, Tier 2’s tier 3’s and the time has never been riper to build for the masses. Gone are the days when the ecosystem was looking to replicate for India, It is now to build in and for India. This month, the anatomy series is going to be focused on startups that have built solutions for the masses. The startup I will cover today is the much-coveted unicorn Meesho. Meesho to put it in context is the Shopify of India focused on giving tools to do business on social platforms. Today, in this article I will go an extra mile to give a detailed analysis on the Meesho ecosystem, How it has empowered people and why the unicorn is so pampered.
Overview
Meesho operates as an online reselling platform that enables anyone to start a business without investment. Meesho has been successful in taking away the barriers of entry for the common man. You don’t have the capital to start a store offline, you can come online, start a shop on social media, access from meesho supplier market space and only when you get an order you purchase that from the marketplace. It has taken the concept of the popular mom and pop stores completely online and transformed it into scalable commerce. It has reimagined Indian e-commerce.
*Reselling is the business of acquiring products from a wholesale supplier and selling them to customers after adding a margin.
Market and Background
Social commerce is a subset of e-commerce that leverages social networking platforms to buy and sell goods. The E-commerce market in India is valued at $84bn today and according to Bain and Company social commerce is on road to becoming two times the size of the existing e-commerce market within the next 10 years. Currently, the segment is worth around $2bn in gross merchandise value (GMV) and is expected to grow 10x in the next 5 years.
“Social commerce in India is broadening India’s e-commerce sector and paving the way for a model that’s built on community, connection, and trust. While traditional e-commerce will continue to flourish, social-led models will broaden the reach of e-commerce for Indian consumers”
India is a trust deficit market and as of date, only 8% of Indians shop online. Social first models bring in community-based approaches which reduce the trust deficit and helps significantly for non branded products to sell without crunching the margins too much. Social-first models have been able to scale with much lower customer acquisition costs globally and we can see similar trends in India too.
Journey and Strategy
Vidit Aatrey and Sanjeev Barnwal alumni of IIT-D were best of mates during their college days, they worked a lot together for projects and competitions, back in 2015 three years after college Sanjay was working with sony in japan when he rings up Vidit to do a background check on a startup in Bombay via which he sought to return to India. Vidit was piqued and threw in the idea of starting something together, if it failed then they could move back to corporate, the two spend a considerable amount of time brainstorming before coming up with Fashnear (Hyperlocal fashion discovery and commerce app) which would pivot to become Meesho (Derived from “Meri Shop”) an app that enabled physical stores to take their inventory online and sell through social channels. A few months later Meesho would pivot again to become India’s first online distribution channel providing an opportunity for individual resellers to sell these products on social networks(Whatsapp, Facebook, Instagram..) with the help of Meesho’s tools.
From initially trying to solve the fashion problem meesho was now solving a much bigger problem of enabling the entrepreneurial ambition of the next billion. It didn’t just simply take data online but converted the Indian offline reseller-customer behaviour to a seamless online experience. It was a very Indian solution to an Indian problem Meesho was tapping into the next billion.
In India, all e-commerce brands have a lot of unbranded products listed but none of them has figured out how to sell a lot of them due to the trust deficit in the market, most of these brands are sold by local mom and pop stores in their communities which reduces the trust deficit, Meesho has taken these stores online and also roped in thousands of aspiring entrepreneurs mostly women (90%) and in the process has empowered them.
“Any startup which is trying to do something super bold and something very new comes off as not very understandable because they are very new. Meesho sounded like a marketing gimmick, a fad that exists this year and will go away tomorrow,” — Vidit Aatrey
Meesho strategy has been to be highly user-focused, to listen to them, get continuous feedback and keep improving, this has worked out amazingly so far and it has helped Meesho create an ecosystem of entrepreneurs within itself. Meesho today has over 1 crore resellers, the average earnings per seller are somewhere around Rs 15,000/- which is significant given that for most of them it is a secondary source of income.
Timing has been the most crucial factor for this rampant growth, it launched when Jio was disrupting the internet market and millions of Indians were coming online, WhatsApp became popular and UPI was reimaging online payments in the country, these macro trends have largely favoured Meesho in becoming the unicorn it is today in just 6 years.
Business Analysis
Meesho operates on a B2B2C model. It enables resellers to pick selected products for their audience and handles the shipping for them.
Sources of revenue:
- Commission from reseller: 10–20% depending on the category
- Commission from seller: 1–1.8% depending on the category
- Revenue from shipping
Let’s take a case: A supplier lists a kurta at Rs 300, A reseller comes across this and circulates it in their network via WhatsApp/Facebook and receives a customer. Now the reseller has the leverage to add as much as margin they can, here let’s say our reseller adds a margin of Rs 200. Now the reseller places a purchase order, Meesho collects the kurta, adds the invoice as Rs 500+delivery charges and ships it to the customer. Upon the payment received from the customer, Meesho deducts the commissions and pays back to the suppliers and resellers.
Meesho has raised $515.2 mn so far and is valued at $2.1 Bn. Despite generating revenue Meesho is not profitable given the ever-increasing focus on customer acquisition, retention and logistics, however with a growing market, we can soon see them consolidate and move towards profitability.
However, challenges lie in the forms of resellers ability to sell, product quality and increasing premiumization. The mandate will be to stick to their customer obsession strategy and keep identifying avenues for growth.
Conclusion
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Sources: Crunchbase, Techcrunch, Entrackr, Inc 42, AJVC blog, crosstalking VC, y combinator, Meesho website.
